Here are a few things that could help with minimising your tax bill before year-end
Beyond making sure everything is filed to the ATO’s liking, the lead-up to EOFY can be an ideal time to conduct a personal finance health check and reconsider your EOFY tax planning strategies.
Bring forward deductible expenses and interest payments
If you have the money on hand, consider bringing forward next year’s deductible expenses (such as work-related expenses) or pre-paying the interest on an investment loan. Doing this will let you bring the tax deduction forward too, potentially boosting any refund you may receive this financial year.
According to the ATO, a prepaid expense may be immediately deductible for excluded expenditure (e.g. less than $1,000) or if the 12 month rule applies (that is, it doesn’t exceed 12 months and ends in the next financial year). To confirm which deductions you can bring forward, consider seeking the advice of an accountant.
Review any capital gains and losses
As with the above strategy, sometimes all it takes to minimise your tax burden is rethinking the timing. When it comes to the sale of assets, such as shares or property, you could benefit from a 50 per cent discount on any capital gains so long as you hold the assets for at least 12 months prior to selling. And if you’re able to sell in a year that your other income is reduced, you could potentially lower your CGT liability even further.
Of course, reducing your tax liability shouldn’t be the only consideration when selling your assets — it needs to fit in with your overall investment plan too.
You can also use losses from previous years to your advantage. Unlike sales of assets that result in a profit – which are subject to capital gains tax in the financial year the sale was made – losses can be carried forward to future years. That means if you sold shares last year for less than you purchased them, the loss can be deducted from any capital gains you made this year.
Review your insurance policies before renewing
The cost of personal insurance premiums typically isn’t tax deductible to you as an individual, unless it’s an income protection policy. This can be tricky since income protection can often be bundled with total and permanent disability (TPD) and trauma cover. If applicable, consider asking your insurance provider to break down your premium cost to find out which portion you can claim.
You should also consider whether your life and TPD cover should be held within super rather than individually. Since your super fund can claim a tax deduction for life and TPD (with an Any Occupation claim definition) cover, holding that cover within super may lower the net cost to you.
Use your super contribution caps
Another strategy to help lower your tax burden is to consider making personal deductible super contributions from your take-home pay and claiming it as a tax deduction. You’ll need to submit a Notice of Intent form to your super fund, but as long as this is done before you complete your tax return, before 30 June of the following financial year, or before you move money out of the super fund (whichever comes first), you pay less income tax and the contribution will be taxed at the concessional rate (usually 15 per cent).
Just keep in mind that any contributions on which you claim a tax deduction will count towards your concessional contributions cap, and if you exceed this threshold, they may be counted towards your non-concessional cap and attract further tax when you lodge your tax return.
Under the Government’s ‘catch-up’ scheme, you may be able to carry any unused concessional cap amounts forward for up to five years, so long as you haven’t used up the full general cap (currently $27,500) in previous years. To be eligible to make catch-up contributions, your total super balance must be below $500,000 at 30 June of the previous financial year.
Of course, you can also choose to make non-concessional contributions from your after-tax pay for which you don’t claim a tax deduction. And depending on your income level, you may be eligible for the Government co-contribution (up to $500).
Use the spouse super tax offset
If your spouse or de facto partner earns less than $40,000 in a year, you may be able to claim a deduction of 18 per cent on after-tax contributions you make to their superannuation account. Under current rules, a maximum tax offset of $540 is available if your spouse earns less than $37,000 and you top up their super by $3,000. This can also be hugely beneficial if your spouse doesn’t work (or works only part-time) and is at risk of falling behind on their retirement savings.
These strategies are just some of the ways you may be able to save on tax. For advice tailored to your personal circumstances, consider seeking qualified and professional advice.
Contact Carrick Aland’s award-winning Wealth Planning team on 1300 466 998 or visit carrickaland.com.au/wealth-planning/. Greg Burton is an accredited FPA Aged Care Specialist.
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